Correlation Between SunPower and SolarEdge Technologies

Can any of the company-specific risk be diversified away by investing in both SunPower and SolarEdge Technologies at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SunPower and SolarEdge Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SunPower and SolarEdge Technologies, you can compare the effects of market volatilities on SunPower and SolarEdge Technologies and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SunPower with a short position of SolarEdge Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of SunPower and SolarEdge Technologies.

Diversification Opportunities for SunPower and SolarEdge Technologies

0.21

Correlation Coefficient

SunPower  SolarEdge Technologies

Modest diversification

The 3 months correlation between SunPower and SolarEdge is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding SunPower and SolarEdge Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SolarEdge Technologies and SunPower is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SunPower are associated (or correlated) with SolarEdge Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SolarEdge Technologies has no effect on the direction of SunPower i.e., SunPower and SolarEdge Technologies go up and down completely randomly.

Pair Corralation between SunPower and SolarEdge Technologies

Given the investment horizon of 90 days SunPower is expected to generate 3.62 times more return on investment than SolarEdge Technologies. However, SunPower is 3.62 times more volatile than SolarEdge Technologies. It trades about 0.16 of its potential returns per unit of risk. SolarEdge Technologies is currently generating about -0.17 per unit of risk. If you would invest  216.00  in SunPower on February 29, 2024 and sell it today you would earn a total of  82.00  from holding SunPower or generate 37.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

SunPower  vs.  SolarEdge Technologies

SunPower

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SunPower are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, SunPower reported solid returns over the last few months and may actually be approaching a breakup point.

SolarEdge Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SolarEdge Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SunPower and SolarEdge Technologies

The main advantage of trading using opposite SunPower and SolarEdge Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SunPower position performs unexpectedly, SolarEdge Technologies can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SolarEdge Technologies will offset losses from the drop in SolarEdge Technologies' long position.

The idea behind SunPower and SolarEdge Technologies pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.